Developed international stock markets posted solid first-quarter gains, the bulk of which were recorded in January as fear about the European debt crisis receded. Emerging markets stocks were broadly lower, giving back all the gains from January and February in March, in part due to concerns about slowing growth and on currency weakness. Small-cap stocks posted strong returns that outpaced the broad international market. The yen and the British pound declined substantially versus the U.S. dollar, and the euro was also weaker.
The International Discovery Fund returned 6.03% in the quarter compared with 6.08% for the S&P Global ex-U.S. Small Cap Index and 6.93% for the Lipper International Small/Mid-Cap Growth Funds Average. For the 12 months ended March 31, 2013, the fund returned 13.96% versus 11.14% for the S&P Global ex-U.S. Small Cap Index and 13.40% for the Lipper International Small/Mid-Cap Growth Funds Average. The fund's average annual total returns were 13.96%, 3.66%, and 15.83% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 1.23% as of its fiscal year ended October 31, 2012.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
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The International Discovery Fund charges a 2%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
Technology remains the fund's largest overweight relative to its benchmark. We slightly raised our allocation to consumer discretionary stocks, most notably in emerging markets and Japan. We reduced our health care holdings but continue to favor the sector. We've begun to add to our materials holdings but remain underweight. While we are still cautious, we remain overweight to Europe as the region continues to host a large number of attractively valued, high-quality small-cap companies. We remain optimistic about the long-term growth outlook in Asia, where disposable incomes and consumption are growing strongly and the middle class continues to expand. The rally in Japan allowed us to trim holdings of export-oriented names, which performed well on the back of weaker yen. We added to more domestically oriented laggards that could benefit from a rise in inflation and economic activity.
Policymakers continue to provide more monetary and fiscal support than most investors had expected, which is contributing to positive sentiment and higher equity prices in most developed non-U.S. markets. Investor concerns about the European sovereign debt crisis have eased, and equity markets are benefiting from a steady shift from low-yielding money funds into stocks. In Japan, markets have been even more positively influenced by policy aimed at lifting inflation and asset prices.